Ideas for a progressive future

Pay more tax and be better off?

We argue for a reform of the tax system and significant improvements to the management of the tax collection system itself

Our Tax system is broken and in need of major reform. The wrong things are taxed and the wrong people pay too much. Politicians have been unable or unwilling radically to reform the system, simply promising to reduce taxes, something they have been unable to do. In this election there has been a slight shift in attitudes and a realisation that taxes may have to rise to fund things like social care and the increasing numbers of the elderly.

It starts with simple belief we all have: we would be better off if we paid less tax. This is deep rooted and is never challenged, certainly not by politicians. Indeed, the idea we could be individually better off if we paid more in tax seems too absurd to merit discussion.

The Adam Smith Institute is a think tank keen on the idea of lower taxes and on its opening page it says: Low, simple, flat taxes that encourage investment and innovation, and hence economic growth. They seem unaware of the billions paid to firms in the form of corporate welfare. They also want all property taxes to be removed. The Institute seems to live in a surreal world where economic growth will be achieved simply by reducing taxes ignoring the enormous payments made to firms – out of taxation.

The language of tax is also interesting. We refer to tax being taken or deducted from us. Whereas, we talk of paying for a service that the tax system might provide.

The basic efficiency of the tax system is never mentioned. The only argument in town is that we want less of it. The prevailing view of the media and many politicians is that tax is a bad thing and less we pay the better it will be for all of us.

What is tax?

What is tax and why do we pay it all? Tax is collected by governments to reclaim the money they have spent on matters such as defence; public services including the police and security services; on health; roads and railways; schools and to run the country itself. It forms the vital link we the people have with government and democracy itself. We should demand the system is fair, the right things are taxed and people pay according to their means. It cannot be fair that the poorest pay, proportionately, the most and the very rich can largely avoid paying any at all. For them, tax is a voluntary exercise.

Following the dreadful events in Manchester an argument broke out about police numbers. These had been cut as part of the austerity programme. There are arguments to be had about efficiency and that all crime prevention and detection need not necessarily be done by police officers – with cyber-crime for example. Nevertheless, austerity was driven partly by the desire for a smaller state and to reduce public spending as a proportion of GDP. Hence fewer police officers.

Why it doesn’t work

It starts to go wrong with HMRC itself as argued by Richard Murphy in his book The Joy of Tax. It might surprise you to know that HMRC – despite being responsible for collecting vast amounts for money – has no minister in charge of it and is effectively unaccountable. Nor is there a select committee in parliament responsible for its activities. The board of HMRC is drawn from a very narrow base of mainly large companies. It does not represent the broad range of taxpaying interests it is responsible for. It has been rightly accused of having too cosy a relationship with major corporations allowing them to escape billions in tax. Readers of Private Eye will have been variously entertained and horrified by the activities of senior tax officials jetting off the south of France to have meetings with firms who owe billions in tax, very little of it getting paid.

The Treasury is equally dysfunctional relying heavily on the advice and staff of major accountancy firms in the formation of tax policy. These very firms are at the heart of the multi-billion pound tax avoidance industry – truly the foxes have entered the henhouse.

Then there is the role of the City of London which is at the centre of the world’s largest network of tax havens. In Nicholas Shaxon’s book, Treasure Islands, a vast industry is described to enable avoidance and evasion of tax and for money to be routed to an archipelago of islands such as Jersey; the Isle of Man; Caymans and the British Virgin Islands. The numbers are vast involving thousands of banks and trillions of pounds (and dollars etc). This is money which could be spent on providing a better education for all; a health service which need not be in a permanent state of crisis and proper care for the elderly (part of the current election debate).

All the key players are not functioning properly and are not sufficiently controlled or even controlled at all. Huge amount of skill and effort goes into avoidance and very little into improving the fairness and effectiveness of the system. Large parts are opaque and secretive. Very occasionally, a window opens as we saw with Luxleaks and the Panama papers, revealing the truly massive scale of the avoidance industry and those involved in it.

What can be done?

It must start with us. If every election consists of politicians saying they will reduce taxes because they think we believe we will be better off then we will continue to get the system we have now. If we pay more in tax and get the roads, schools and health service we need, we will be better off not worse.

We have to demand of our politicians that we have a tax system that taxes wealth more than income. The idea that the wealthy should pay their share into the national pot seems to have disappeared from national discourse.

We have to demand that the City of London is brought properly under control and that as a nation we cease to be at the centre of the world’s largest network of tax havens.

We also need to demand that HMRC is responsible to a specific minister. Its board of directors needs to be reformed so that the influence of wealth and the City of London is drastically reduced. It should also be answerable to a select committee.

As individuals we must all accept that there are good things to the tax system and not just to think of it as a necessary evil. Tax can be used to reduce inequality. It can be used to help create sustainability. It can promote economic growth and to reduce regional imbalances.

Paradoxically, if the system was reformed with a greater emphasis on fairness, taxing wealth more than income, and ensuring that the avoidance industry based on the City of London was substantially curtailed, many people reading this are likely to see their tax bill go down.

Salisbury Compass is calling for a major reform of the tax system. We will be holding a Tax Freedom Day event soon

9 thoughts on “Pay more tax and be better off?”

The brilliant Prem Sikka, Professor at University of Essex (as from 2017 Emeritus) in effect wrote the Labour Manifesto. He is in contact with Joh McDonnell. Prem knows the details of the Tax Avoidance schemes practised by the major international companies like Google, Costa, Amazon. A shell company, founded perhaps in Cyprus, taken over by another shell company based in Luxembourg. taken over by another shell company based in Ireland, and then finally taken over by one in the British Virgin Islands, where companies are completely protected from investigation, successfully avoids paying tax.
One solution to the tax problem is straightforward: take back the British Virgin Islands, and force all companies based there to declare their finances like companies based in Britain.